The biggest problem that all of us struggling with this issue have is that we simply can’t rely on information we are given. I’ve mostly given up researching it and am instead looking at the issues involved in selling Wizard’s Tower to someone outside of the EU. Juliet McKenna, however, has been beavering away. And the more she finds out the more like Looking Glass Land the whole thing becomes. Take this, for example:
HMRC on legal issues if a UK website declines customers in the EU?
"Not for VAT but other laws (eg anti discrimination) may apply" #VATMOSS
— Juliet E McKenna (@JulietEMcKenna) November 30, 2014
Yes, that’s right. On the one had we are being told that we should prevent people in other EU countries from buying our products if we can’t charge the correct VAT rate, and on the other hand we are being told that such discrimination may be illegal.
Meanwhile folks in other countries are getting worried about having to register. Here’s Howard Tayler:
The best we can do re #VATMOSS is post a message saying "EU friends, it's illegal for you to shop here because we can't track you."
— Howard Tayler (@howardtayler) November 30, 2014
So, no Shlock Mercenary for you, EU readers. And HMRC is quite adamant that non-EU suppliers MUST register, no matter how small their business.
.@Iammo_25 Yes, if a digital service. Consider non-union MOSS scheme
— HMRC Customer Support (@HMRCcustomers) November 27, 2014
Does that seem crazy to you? Well actually it is. No sane European government would do that. It just isn’t practical for a government to worry about collecting VAT on the sale of 40 knitting patterns a year, let alone take legal action in Canada to enforce it. So I don’t think that Howard, or anyone else outside the EU, has anything to worry about unless they have an EU-based subsidiary, or they sell huge amounts of product. The obvious proof of this is that non-EU countries have been liable to charge VAT under the Place of Supply rules since 2003. To my knowledge, no non-EU small business owner has been arrested over this.
What’s different now is that the same rules are being applied to EU-based businesses, and that HMRC insists that every business has to register, no matter how small. Their rationale for this is that they cannot control laws in other EU countries. While the UK might have a threshold of £81k turnover, below which a business need not register for VAT, other countries might not be so friendly to small business. I quote from their recent FAQ on the subject:
B2 Why can’t there be a minimum VAT threshold like in UK? #VATMOSS
Within limits, each Member State decides on its own VAT threshold, and we cannot impose our threshold on them. #VATMOSS
And they are right. Hang your heads in shame, Spain and Sweden, both of whom have zero thresholds.
But wait, did you click through on that link? Did you read what it said at the top of the page? OK, for those of you who didn’t, here are the important words:
Generally, non-resident businesses that must register for VAT in another EU state face a nil registration threshold. A major exception to this rule is e-commerce to consumers, where foreign EU retailers have special EU distance selling VAT thresholds.
I’ll repeat that. Special EU distance selling VAT thresholds, which apply solely to digital transactions. Here they are. And guess what? None of them are anywhere close to zero. All of them would easily allow a micro-business such as Wizard’s Tower to keep trading.
Now that site I have been linking to is not an official government site. It is, however, very comprehensive and seemingly well informed. For example, just last week they reported that Google would be changing their terms of business to be properly VAT-compliant under the new rules. That’s a big relief.
So what exactly is going on here? It is, of course, entirely possible that HMRC is far better informed than most, and they know that the distance-selling VAT thresholds will be lowered as of January 1st. On the other hand, we could be dealing with a dishonest government seeking to put the squeeze on small businesses and sow distrust of the EU by pretending that EU regulations are much more draconian than they really are.
Update: I see that the page linked to above now notes that thresholds are zero for “electronic services”. Believe it or not, that means all digital sales. As Juliet notes here, that makes a certain amount of sense for a book or movie that has DRM, because you are buying a license to view it, not the object itself. It makes no sense whatsoever if you are simply selling a file. And indeed HMRC says that such things are not “services” if they are manually emailed to the customer rather than directly downloaded. Honestly, it makes quantum physics seem easy.
Just to re-iterate what I said at the beginning of this post, the main issue here is that it is impossible to tell what it is safe to do and what it isn’t safe to do. HMRC will not issue guidance, but they will prosecute if you get it wrong. No one has any idea how governments will cope with tens of thousands of very small companies trying to register to charge VAT, and HMRC seems perfectly happy with the idea that all of those companies will be forced out of business.